France devalues franc
The French government devalued the franc for the second time in eight months this weekend, and announced a series of austerity measures to stem the currency's fall, reports Monitor contributor William Echikson.
Through a series of realignments of European currencies, the franc was effectively devalued 10 percent against the German mark and Dutch florin at an emergency meeting of European Community finance ministers in Brussels June 12. The meeting was called as continued speculation on the franc lowered it to the edge of the lowest permitted rate in the European monetary system, French Finance Ministry spokesman Denise Mairey said.
In a related effort to bolster the franc, the French government clamped on price and wage controls for four months, cut social security benefits, and vowed to hold the budget deficit to 3 percent of gross national product while slowing monetary growth. These actions are designed to slow France's 14 percent annual inflation rate at a time when inflation has been dropping dramatically elsewhere in Europe and the United States.
It was thought the Socialists would wait till summer or fall, so as not to appear to be devaluing the franc too often. But last week a new wave of speculation lowered the franc to a new record 6.35 against the dollar, despite continued efforts by the Bank of France to stem the tide by selling its foreign reserves. The hope now is that with France's new antiinflationary measures, the franc's value can be steadied against the currencies of its European partners, and shore up the European monetary system, Mrs. Mairey said.